How to Form an LLC in California: A Guide For New Business Owners

When you decide to form an LLC in California it's important to be aware of the requirements and guidelines that are in place you will need to follow. Having a set list of steps you will take makes this process much more simple, and you will be able to follow this to ensure you do not forget anything. This check list will include:

1. Choosing a business name

2. Appoint a registered agent

3. Submit your articles of organization

4. File statement of information (Form LLC-12)

5. Draft an operating agreement

6. Obtain an EIN

7. Maintain ongoing compliance

This guide will cover what is required for correctly forming an LLC in California, as well as what process to complete these steps in. You can either choose to do this process on your own, or you can have a service like Firstep complete this form for you. LLCs are one of the most popular business structures in California due to the liability protection they offer to owners and flexibility of the business.

Step 1: Choose a Business Name

To start the process of forming a new LLC in California, you will need to choose a name for your business. The name you choose will need to be unique and distinguishable enough from other active businesses in the state. To be sure of this, you can use the business name search tool on California's business website to go through potential names you would like and see if these are available. It's helpful to brainstorm a few different names and not start any operations before you have officially formed your business to avoid any setbacks in case your preferred name is already in use.

Your LLC name will need to include a designator such as "LLC", "L.L.C." or "Limited Liability Company". Be aware that since your name will need to be distinguishable from other active businesses, that changing a few letters or one word in the name will most likely not be enough to differentiate your name from other businesses. You will also need to avoid using certain terms in your name like "bank", "insurance", or any terms that might imply you are affiliated with the government or a professional service when you are not.

Step 2: Appoint a Registered Agent

Any LLC that is formed in California will be required to have an active registered agent assigned to their business. A registered agent is someone who is responsible for receiving any service of process that is sent to your business, whether that be notices from the state or potential lawsuits against your business. You can appoint whoever you would like as your registered agent whether that is yourself, a trusted friend or family member, or you can hire a registered agent service. A service is useful as this will ensure they meet all state requirements for a registered agent, and they will have processes for getting you these documents in a timely manner.

Your registered agent is required to be at least 18 years old, have an active and current address in the state of California, and be available during regular business hours which are Monday through Friday 9am-5pm. It's important to be aware that if you do choose to act as your own registered agent your address will be listed on your business information, which is public information. For those that don't want this, a service is able to list their address for your registered agent information instead.

Step 3: Submit Your Articles of Organization

With your business name and registered agent chosen, it's now time to submit your articles of organization to officially form your California LLC. This will be done through their business entity website and you will need to navigate to the "forms" tab. From here, you will need to select the articles of organization to begin the process of submitting this form.

The first step will be to give contact information, although not required, in case the state needs to contact you regarding the submission of this form. You will then need to enter the exact name of your LLC that you have chosen, including any designators of the business, followed by the business and mailing address your business will be listed at. Next, you'll have to choose your LLCs management structure and filing date, which typically you will choose the current date of when you submit this form. Lastly, you will have to submit a signature for your articles of organization and submit the payment which is $70 for a California LLC.

Once you have paid and submitted the form, processing times will typically be around 7-10 business days however they can vary if it is a busy time of the year or not. It's best to wait until you have gotten your articles of organization approved to begin doing any business operations to ensure your name has been approved and there are no issues with the form. If you choose to have a filing service like Firstep take care of this process for you, your registration will be taken care of and you will be sent your certified documents once they have been approved so you can focus on getting your business started and not on paperwork.

Step 4: File a Statement of Information (Form LLC-12) For Your LLC

After you have gotten your LLC approved and received the certified articles of organization, you will need to submit a statement of information. In California, you will need to submit this form within 90 of the formation of your new business, and this will cost $20 if you decide to do this on your own. If you have chosen to have Firstep form your business for you, we will automatically submit this filing once your articles of organization have been approved to ensure the form is submitted on time with accurate information.

The statement of information will include information about your business such as your exact business name, business address, your registered agent information, and the name and addresses of the LLCs managers or members. This information will be listed on your business page for the state, so it's important to ensure all information you input is updated and accurate to avoid any complications with your business.

Step 5: Draft an Operating Agreement

Once your new LLC has been formed, and you successfully file your statement of information it's recommended to draft an operating agreement for your LLC. An operating agreement is a document that outlines the roles and responsibilities of owners of the business, and can be an important thing to have to ensure your business processes are standardized. This document will detail the responsibilities of owners, the ownership percentages, voting rights, decision making processes, and how to settle disputes between owners of the business.

Operating agreements are legally required for LLCs in California, so this must be done to be considered in good legal standing with the state. As your business grows, the operating agreement will detail the processes for joining and leaving the business, for example when new investors or owners join the business. Although this is required in California, operating agreements are helpful because they strengthen the liability protection that LLCs provide to business owners, and ensure each member understands their role and what is expected of them within the business.

Step 6: Obtain an EIN (Employer Identification Number)

To ensure your business is able to operate in good standing it will be very useful to obtain an EIN number. This number will be issued to your LLC by the IRS, and each business is only able to receive this one time and your number will not expire. These are used for many reasons such as for tax purposes, hiring employees, and opening a business bank account.

You can either choose to obtain this number on your own, or you can have a service like Firstep complete this process for you. When you are going through this process with the IRS, it's important to ensure all information is entered exactly how it shows on your articles of organization to avoid any issues with the approval process. Since this is done through the IRS, if you do have issues these can lead to long wait times and take multiple weeks to complete the submission process.

If you believe you have gotten an EIN number before, or have forgotten or lost your documentation, you are still able to retrieve this information. However, be aware this can be a long process so it's important to take care of this before it is near tax time to ensure you are able to get this completed before the due date has passed. Firstep is also able to complete this for you and will deal with all IRS correspondence so you don't have to.

Step 7: Maintain Ongoing Compliance

After forming your LLC and obtaining all required documentation for it, you will need to continue to keep your business in good standing. This will include filing a statement of information biannually and registering for any business licenses that relate to your business industry, which are typically done on the local level. Also, California LLCs are required to pay an annual franchise tax of $800 to continue acting in good standing.

Statement of Information

As an owner of a California LLC you will be required to submit a statement of information biannually to renew your business registration. You will need to submit the following information on these reports:

• LLC name and file number issued to your business by California

• Physical and mailing business address

• Registered agent information

• Information of members of the LLC

• Business purpose

You will need to ensure this information is updated and accurate on these reports, as this will be listed on your business information page. These reports will cost $20 to renew directly through the state, or you can have a filing service like Firstep take care of this process for you so you do not forget to file or miss any reports. In California, there is no fee for missing your deadline for the statement of information, however you do risk your business being dissolved by the state if you are not in good standing for a prolonged time. This will cause you to have to reinstate your business, which can potentially lead to high fees imposed on your business.

Business Licenses

Depending on your type of business and what industry you are in, you might need to register for certain business licenses to legally operate. This is generally required for industries such as healthcare, law, insurance, or construction. Business licenses are usually dealt with by local level government, so be sure to check if this will apply to your business.

FAQs on LLCs in California

Where do I go to file my articles of organization and submit biannual reports

To submit your articles of organization and submit your LLCs biannual reports you will need to go to the California business site to find these forms. The articles of organization will be found under the "forms" tab and your biannual reports will be located by searching your business and going to your business page.

Am I legally required to have an operating agreement in California

Yes, it is legally required for LLCs to have an operating agreement in the state of California. These will outline the roles and responsibilities of the owners of the business, and detail how operations will be run.

Do I need to live in California to form an LLC in the state

No, you do not need to live in California to form an LLC in California. However, you will need to have a registered agent that has an active and current address in the state. If you don't have a person who meets the requirements for a registered agent, you can hire a service to appoint.

How much does it cost to form and maintain an LLC in California

It will cost a total of $90 to form an LLC in California, which includes $70 for formation and $20 for a statement of information. To renew your business and submit statement of information reports biannually, you will need to pay a $20 filing fee.

When can I file my biannual report for my California LLC

Your LLCs biannual report will be due every 2 years on your LLCs original registration month. You can file these as far out as 6 months before, and anytime between then and your due date.

Why Do I need an EIN (Employer Identification Number)

You will need an EIN for your LLC for tax purposes, hiring employees, or opening a business bank account. Also, to establish business credit and protect against identity theft because you will not need to list your personal social security number on sensitive documents.